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Government wants people to keep paying on underwater mortgages -- Dean Baker

Banks want the government to get people to keep paying on underwater mortgages as long as possible. While this may make little sense for these homeowners, since they will never accumulate equity and are likely paying more in ownership costs than they would pay to rent a similar house, it does help the banks' bottom line. Each additional month that underwater homeowners stay in their homes paying the mortgage the banks are getting money they would not otherwise receive.

This explains the value of a program like the Home Affordability Modification Program (HAMP). Only a small fraction of the people who enter this program will end up with a permanent modification that will actually allow them to accumulate equity. However, the entire time that they work with the program, they keep sending a mortgage check to the bank -- and the government kicks in some taxpayer dollars as well. This is a real win-win from the standpoint of the banks as they get more checks from the homeowner than would otherwise be the case, plus the subsidy from the government for stringing homeowners along.

-- Dean Baker


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